RBA Cash Rate - What does it mean to me?

February 10, 2016
Chantelle Rangel

"Rates on hold,  Rates on hold". Every one is talking about the RBA cash rate on hold. What's the big deal?  

Here's how the Cash Rate can impact you.

What does it mean? 
The RBA's (Reserve Bank of Australia - Australia's central bank) main objective is to control inflation through monetary policy (setting the interest rates). The RBA lowers and increases the rate at which they offer other Australian banks

By lowering the interest rate, it costs you less to borrow money. This stimulates our economy and typically increases spending. The opposite happens when they increase the rates. 

 

How does this impact you:

If you already own a property?

  • low cash rate and variable rate - it could free up some money. you could be paying less interest and therefore lower repayments. 
  • low cash rate and fixed rate - Its always good to shop around, sometimes even pay your existing break fee to get out of your current rate to take advantage of a lower rate. 

Looking to buy or invest?

 

  • You have flexibility to opt for a fixed, variable or combination rate depending on what gets you most bang for your buck.
  • Analysing the RBA's decisions could provide some insight into future housing fluctuations

Impacts to your savings account

 

  • Shop around when the RBA increases the interest rates, you could increase your savings potential
  • Lower rates - you might get better bang for your buck if you pull your savings and invest them in property instead. 
  • High rates - perhaps opt for a higher yeilding savings account or invest in Bonds.

 

Predicting the future?

Now, wouldn't it be nice if we could predict the RBA's future steps. As a general rule of thumb, if the economy is doing well and consumer spending index is up, interest rates will probably increase

If the economy is sluggish and consumer spending is low, the opposite may happen and the RBA might hold or lower rates to encourage spending. 

The banks longer term fixed interest rates may give us an indication of what we think the banks think about where rates are going.

Now, lets chat about your options. Call Hugh on 0429 010 146 or Bob on 0411 555 315

Posted in: Interest rates

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